THE IMPACT OF MICRO, SMALL, AND MEDIUM ENTERPRISES CREDIT TO INCOME INEQUALITY IN INDONESIA

Abstraksi

Income inequality has been a growing global concern for the past two decades. High level of income inequality could hinder economic growth and promote social distress. In Indonesia, Gini coefficient shows an increasing trend since 1998. One of the contributing factors to the increase in income inequality is inequality in access to capital. Thus, the Indonesian government has created credit schemes for micro, small, and medium enterprises (MSMEs). The Indonesian government allocates budget for subsidizing interest payments from MSMEs credit schemes, whereas the credit funds are funded entirely by commercial banks that are appointed by the government. This MSMEs credit is basically designed to promote equality in forming business opportunity. Therefore, the objective of this paper is to examine the impact of MSMEs credit to income inequality in Indonesia, using panel data with fixed effect and Huber-White standard errors. The observation spans across 33 provinces from 2005-2016. The dependent variable used in this research is Gini ratio, whereas the controlled variables are MSMEs total debt outstanding to Regional Gross Domestic Product (RGDP) ratio, social security spending to total government spending ratio, public education spending to government spending ratio, the rest of government spending to RGDP ratio, net enrollment rate, total population, share of agriculture, forestry, and fisheries industries to RGDP ratio, net export to RGDP ratio, and RGDP growth. This paper uses secondary data gathered from Bank Indonesia, Indonesia Statistics Bureau, Ministry of Finance, World Bank, and Asian Development Bank.